Mumbai property rate to dip on unsold stock: Knight Frank

Moneycontrol Bureau

Some excerpts from real estate consultancy firm Knight Frank's report on the trends in the Mumbai residential market in June. Prices continue to stay high despite weak demand. But a combination of rising inventory and high interest rates could force a correction in prices shortly, argues the report.

Falling demand:

Absorption numbers in FY 2012 are estimated to have dropped by more than 60% from its 2007 heydays and 35% from FY 2011 to an estimated 45,000. This steep drop in absorption levels should have resulted in a similar correction in prices. However, a regulator imposed supply crunch through delay in approvals ensured that market equilibrium was maintained. 

The ground situation:

The Mumbai market currently has an unsold inventory of 80,000 units which forms 37% of the total residential supply under construction. The investors' segment that makes up approximately 20% of the market demand has been observed to be actively offloading its real estate holdings, thereby adding significant shadow supply into these micromarkets.

Rising cancellations:

Developers in a bid to liquidate their higher priced inventory have been more open to negotiation in the premium segment, reducing prices upto a maximum of 25% in favour of a sizeable up-front payment. We have also observed the number of cancellations increasing over the past few quarters. This is symptomatic of a wary investors' segment which is fast losing faith in the current scenario where developers are hard pressed to even service their debt obligations.

Will prices soften?

Project approvals that were practically stalled in 2011, have started coming through again as the Development Control Regulations were amended early this year. However, demand is likely to remain subdued due to the prevailing uncertainty in the economy. The increase in inventories coupled with the ongoing slack in absorption would put downward pressure on prices.

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